Quarterly report pursuant to Section 13 or 15(d)

Investment in Joint Ventures

v3.4.0.3
Investment in Joint Ventures
3 Months Ended
Mar. 31, 2016
Equity Method Investments and Joint Ventures [Abstract]  
Investment in Joint Ventures
9. INVESTMENT IN JOINT VENTURES

The Company has a 20% ownership interest in Sovran HHF Storage Holdings LLC (“Sovran HHF”), a joint venture that was formed in May 2008 to acquire self-storage properties that are managed by the Company. The carrying value of the Company’s investment at March 31, 2016 and December 31, 2015 was $44.3 million and $44.6 million, respectively. Twenty-five properties were acquired by Sovran HHF in 2008 for approximately $171.5 million and 14 additional properties were acquired by Sovran HHF in 2014 for $187.2 million. In 2008, the Company contributed $18.6 million to the joint venture as its share of capital required to fund the acquisitions. In 2012 the Company contributed an additional $1.2 million to the joint venture. In 2013 the Company received a return of capital distribution of $3.4 million as part of the refinancing of Sovran HHF. In 2014 the Company contributed an additional $28.6 million in cash to the joint venture as its share of capital required to fund acquisitions. In 2015 the Company contributed an additional $0.4 million in cash to the joint venture as its share of capital required to fund certain capital expenditures and property taxes related to 2014 acquisitions. As of March 31, 2016, the carrying value of the Company’s investment in Sovran HHF exceeds its share of the underlying equity in net assets of Sovran HHF by approximately $1.7 million as a result of the capitalization of certain acquisition related costs in 2008. This difference is included in the carrying value of the investment, which is assessed for other-than-temporary impairment on a periodic basis. No other-than-temporary impairments have been recorded on this investment.

The Company has a 15% ownership interest in Sovran HHF Storage Holdings II LLC (“Sovran HHF II”), a joint venture that was formed in 2011 to acquire self-storage properties that are managed by the Company. The carrying value of the Company’s investment at March 31, 2016 and December 31, 2015 was $13.9 million. Twenty properties were acquired by Sovran HHF II during 2011 for approximately $166.1 million. During 2011, the Company contributed $12.8 million to the joint venture as its share of capital required to fund the acquisitions. Ten additional properties were acquired by Sovran HHF II during 2012 for approximately $29 million. During 2012, the Company contributed $2.4 million to the joint venture as its share of capital required to fund the acquisitions. In 2015 the Company contributed an additional $1.7 million in cash to the joint venture as its share of capital required to fund the payoff of a mortgage note. The carrying value of this investment is assessed for other-than-temporary impairment on a periodic basis and no such impairments have been recorded on this investment.

As manager of Sovran HHF and Sovran HHF II, the Company earns a management and call center fee of 7% of gross revenues which totaled $1.2 million and $1.2 million for the three months ended March 31, 2016 and 2015, respectively. The Company’s share of Sovran HHF and Sovran HHF II’s income for the three months ended March 31, 2016 and 2015 was $0.8 million and $0.6 million, respectively.

The Company has a 49% ownership interest in Iskalo Office Holdings, LLC, which owns the building that houses the Company’s headquarters and other tenants. The carrying value of the Company’s investment is a liability of $0.5 million at March 31, 2016 and December 31, 2015, and is included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets. For the three months ended March 31, 2016, and 2015, the Company’s share of Iskalo Office Holdings, LLC’s income was $59,000 and $58,000, respectively. The Company paid rent to Iskalo Office Holdings, LLC of $0.3 million during the three months ended March 31, 2016 and 2015.

The Company holds an 85% equity interest in Urban Box Coralway Storage, LLC (Urban Box), a joint venture with an unrelated third party. Urban Box was formed in 2015 and is currently developing a self-storage property in Florida. During 2015, the Company contributed $4.0 million to Urban Box as its share of capital to develop the property, which primarily consists of the acquisition of land in 2015. Urban Box will enter into a non-recourse mortgage loan in order to finance the future development costs. The Company and the other joint venture member have participation rights which require the agreement of both members in order to implement the activities of Urban Box which are most significant to its economic performance. Accordingly, the interest is recorded using the equity method.

The Company will perform property management services for Urban Box in exchange for a management fee based on 6% of property revenues. There were no management fees in 2016 or 2015.

The Company holds a 5% equity interest in SNL/Orix 1200 McDonald Ave., LLC (McDonald), a joint venture with an unrelated third party. The joint venture for McDonald was executed in 2016 and is currently developing a self-storage property in New York. During 2016, the Company contributed $0.4 million of common capital and $2.3 million of preferred capital to McDonald as its share of capital to develop the property. McDonald will enter into a non-recourse mortgage loan in order to finance the future development costs. In accordance with the terms of the McDonald joint venture agreement, the Company has the ability to assert influence over certain business matters. Accordingly, the interest is recorded using the equity method.

The Company will perform property management services for McDonald in exchange for a management fee based on property revenues. There were no management fees in 2016 or 2015.

 

A summary of the unconsolidated joint ventures’ financial statements as of and for the three months ended March 31, 2016 is as follows:

 

dollars in thousands)

      

Balance Sheet Data:

  

Investment in storage facilities, net

   $ 527,662   

Investment in office building

     5,007   

Other assets

     17,238   
  

 

 

 

Total Assets

   $ 549,907   
  

 

 

 

Due to the Company

   $ 672   

Mortgages payable

     223,401   

Other liabilities

     6,006   
  

 

 

 

Total Liabilities

     230,079   

Unaffiliated partners’ equity

     257,098   

Company equity

     62,730   
  

 

 

 

Total Partners’ Equity

     319,828   
  

 

 

 

Total Liabilities and Partners’ Equity (Deficiency)

   $ 549,907   
  

 

 

 

Income Statement Data:

  

Total revenues

   $ 18,005   

Property operating expenses

     (5,951

Administrative, management and call center fees

     (1,303

Depreciation and amortization of customer list

     (3,106

Amortization of financing fees

     (89

Income tax expense

     (58

Interest expense

     (2,574
  

 

 

 

Net income

   $ 4,924   
  

 

 

 

The Company does not guarantee the debt of Sovran HHF, Sovran HHF II, Iskalo Office Holdings, LLC, Urban Box, or McDonald.

We do not expect to have material future cash outlays relating to these joint ventures outside our share of capital for future acquisitions of properties.